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The outlook for the market remains grim for the near term as steaming inflation, record high global crude oil prices and high interest rates threaten the pace of growth in the world's second fastest expanding major economy, driving investors to the sideline or to exit.
To tame inflationary pressures, the Reserve Bank of India (RBI) on 24 June 2008, raised its key lending rate viz. the repo rate by 50 basis points to 8.5% with immediate effect, its highest since March 2002 and the second hike this month. The RBI had earlier on 11 June 2008, raised the repo rate, by 25 basis points to 8%. The RBI also increased the cash reserve ratio, the ratio of deposits banks must keep with it, to 8.75% from 8.25% in two 25-basis-point stages on 5 July 2008 and 19 July 2008.
Political factors will also weigh on the market due to the ongoing confrontation between the government and Left parties over the Indo-US nuclear deal. The UPA-Left coordination committee on Indo-US nuclear deal on 25 June 2008 decided to meet again later. Foreign Minister Pranab Mukherjee said the committee completed its discussions on all aspects of the nuclear deal. The next meeting of the committee will finalise its findings. The Left parties have already made it clear that they will withdraw their support to the government if it moves ahead with the nuclear deal. Left parties are opposing the deal saying it undermines India's independent foreign policy and nuclear weapons program. With inflation expected to remain in double-digits in the coming months, it would be suicidal for the ruling coalition to precipitate a political crisis and go for early elections, which are due by May next year.
According to the market experts, the near-term is going to be dictated by oil prices and the medium term is finding the bottom in the market. We are at a point where it is very late to be sellers and it is slightly early to stick your neck out and proclaim that this is the time to start buying. The negative that we are all sensing around is inflation, which is not really a negative, but a consequence of unanticipated inflation. The actions that may come on the policy front are driving the cost of money higher. The dollar had been the weakest currency of the globe in the last four years. A ratio graph of the dollar index vis-à-vis the rupee shows that the Indian unit still continues to be at a 10-year low against a broad basket of 6-7 major currencies.
Going forward, there are only two scenarios. The positive scenario is that the market holds out to around that 4,000 level, the news flow improves a little bit, some triggers come in, which could be crude or global markets and you get a short covering rally which gets the markets back. The other scenario of course is that markets don’t get that pullback - small attempts are made, but they get engulfed by the bad news and don’t find support at 4,000 Nifty. It actually goes down to significantly lower levels in this round, win a climactic finish before any kind of rally materialises.
Sunday, June 29, 2008
Tuesday, June 24, 2008
Market Update: Week Starting 23-06-2008
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Sustained selling by foreign funds, rising inflation, high crude oil prices and political uncertainty will weigh on the sentiment of the investors in the near term. Indian stocks suffered losses for the fourth straight session today to settle at 10-month low on sustained selling pressure throughout the day. Concerns of further policy tightening by the Reserve Bank of India with inflation reaching 13-year high early this month and political uncertainty, weighed on the market sentiment today.
On the political front, in an important political development during the weekend, Uttar Pradesh chief minister Mayawati’s Bahujan Samaj Party (BSP) withdrew its support to the Congress-led UPA government which is unlikely to upset the UPA government’s standing. CPM, a key left party, may pull out support to the Congress-led UPA government at the Centre. Left parties have threatened to pull support to the government if it took further steps on the Indo-US nuclear deal. Meanwhile, the Samajwadi Party, is reportedly in talks with the Congress on extending its support to the Indo-US nuclear deal. The nuclear energy deal appears headed for an imminent showdown that threatens to trigger early elections.
Further rising crude oil remains a major worry as India imports close to 70% of its crude requirements. The oil price has surged about 40% in this calendar year so far. Inflation, has reached the highest level in 13 years early this month. The wholesale price index rose 11.05% in the 12 months to 7 June 2008, government data released on Friday, 20 June 2008, showed. The rate was above market expectation of about 10% rise. The reading was the highest in 13 years since 6 May 1995, when it was 11.11%. The quarterly monetary policy review of RBI is scheduled on 29 July 2008 but it may take a call much earlier with inflation hitting the roof. Reserve Bank of India had on Wednesday, 11 June 2008, hiked repo rate by 25 basis points to 8% with immediate effect in an effort to contain rising inflation. A further hike in rates would impact bottomline of Indian companies. Also high interest rates may delay expansion plans of corporates, which in turn may impact future earnings growth.
However the good news is that the June-September southwest monsoon has been 45% above average so far this season. Rainfall in the four-month rainy season this year will be near-normal, or 99% of the average between 1941 and 1990, the weather office had said in April 2008. The department classifies rainfall as near normal when it's between 96% and 104% of the 50-year average. Good rains will bolster farm production which in turn may help rein in inflation.
Again advance tax collections till end of last week has risen 27% over the same period last year. Collections till the end of last week were Rs 20,700 crore up 27% from Rs 16,300 crore in the year ago period. Of this, Rs 4,980 crore has come from just 10 corporates, which is a rise of 40% over what they paid a year ago. This is another good news for the market.
But these positive triggers are failing to make any impact in the market and it is witnessing lower levels with sustained selling pressure from FIIs. Foreign institutional investors (FIIs) have pressed heavy sales of Indian stocks this month in the backdrop of a weakening rupee against the dollar. In June 2008, FIIs dumped shares worth Rs 7,125.20 crore (till 18 June 2008). FII outflow in calendar year 2008totaled Rs 22,494.60 crore (till 18 June 2008). On the other hand, mutual funds were net buyers of shares to the tune of Rs 1,919.90 crore in the month of June 2008, till 18 June 2008.
Volatility is expected to remain high in the near term as derivatives contracts for June series are set to expire on Thursday, 26 June 2008.
Sustained selling by foreign funds, rising inflation, high crude oil prices and political uncertainty will weigh on the sentiment of the investors in the near term. Indian stocks suffered losses for the fourth straight session today to settle at 10-month low on sustained selling pressure throughout the day. Concerns of further policy tightening by the Reserve Bank of India with inflation reaching 13-year high early this month and political uncertainty, weighed on the market sentiment today.
On the political front, in an important political development during the weekend, Uttar Pradesh chief minister Mayawati’s Bahujan Samaj Party (BSP) withdrew its support to the Congress-led UPA government which is unlikely to upset the UPA government’s standing. CPM, a key left party, may pull out support to the Congress-led UPA government at the Centre. Left parties have threatened to pull support to the government if it took further steps on the Indo-US nuclear deal. Meanwhile, the Samajwadi Party, is reportedly in talks with the Congress on extending its support to the Indo-US nuclear deal. The nuclear energy deal appears headed for an imminent showdown that threatens to trigger early elections.
Further rising crude oil remains a major worry as India imports close to 70% of its crude requirements. The oil price has surged about 40% in this calendar year so far. Inflation, has reached the highest level in 13 years early this month. The wholesale price index rose 11.05% in the 12 months to 7 June 2008, government data released on Friday, 20 June 2008, showed. The rate was above market expectation of about 10% rise. The reading was the highest in 13 years since 6 May 1995, when it was 11.11%. The quarterly monetary policy review of RBI is scheduled on 29 July 2008 but it may take a call much earlier with inflation hitting the roof. Reserve Bank of India had on Wednesday, 11 June 2008, hiked repo rate by 25 basis points to 8% with immediate effect in an effort to contain rising inflation. A further hike in rates would impact bottomline of Indian companies. Also high interest rates may delay expansion plans of corporates, which in turn may impact future earnings growth.
However the good news is that the June-September southwest monsoon has been 45% above average so far this season. Rainfall in the four-month rainy season this year will be near-normal, or 99% of the average between 1941 and 1990, the weather office had said in April 2008. The department classifies rainfall as near normal when it's between 96% and 104% of the 50-year average. Good rains will bolster farm production which in turn may help rein in inflation.
Again advance tax collections till end of last week has risen 27% over the same period last year. Collections till the end of last week were Rs 20,700 crore up 27% from Rs 16,300 crore in the year ago period. Of this, Rs 4,980 crore has come from just 10 corporates, which is a rise of 40% over what they paid a year ago. This is another good news for the market.
But these positive triggers are failing to make any impact in the market and it is witnessing lower levels with sustained selling pressure from FIIs. Foreign institutional investors (FIIs) have pressed heavy sales of Indian stocks this month in the backdrop of a weakening rupee against the dollar. In June 2008, FIIs dumped shares worth Rs 7,125.20 crore (till 18 June 2008). FII outflow in calendar year 2008totaled Rs 22,494.60 crore (till 18 June 2008). On the other hand, mutual funds were net buyers of shares to the tune of Rs 1,919.90 crore in the month of June 2008, till 18 June 2008.
Volatility is expected to remain high in the near term as derivatives contracts for June series are set to expire on Thursday, 26 June 2008.
Saturday, June 14, 2008
Weekly Update 16/06/2008
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The market is likely to move in sync with global markets in the coming week. Markets across the globe suffered severe setback in the past few days triggered by spiraling global commodity prices led by crude oil. Selling was seen in metal, realty, power, FMCG and some oil stocks while buying in pharma stocks. Foreign institutional investors (FIIs) have pressed heavy sales in the backdrop of a weakening rupee against the dollar. In June 2008, FIIs dumped shares worth Rs 6,463.20 crore (till 12 June 2008). FII outflow in calendar year 2008 totaled Rs 21,832.60 crore (till 12 June 2008). On the other hand, mutual funds were net buyers of shares to the tune of Rs 894.89 crore in the month of June 2008, till 11 June 2008. India’s economic growth has slowed down as a result of fall in consumer demand caused by rise in interest rates. Industrial output rose 8.1% in 2007/08 (April-March) compared with 11.6% growth in 2006/07.
Fears of Reserve Bank of India (RBI) further hiking interest rates to check soaring mutli-year high inflation, which could choke overall growth of the economy, will continue to haunt investors. Earnings downgrades by brokerages amid rising input and interest costs for India Inc and drying up of global liquidity due to credit crisis remain major concern for the Indian stock market. A further hike in rates would impact bottomline of Indian companies. Also high interest rates may delay expansion plans of corporates, which in turn may impact future earnings growth.
The Indian Meteorological Department (IMD)’s second monsoon forecast for the crucial annual south-west monsoon (June-September) due this month which may indicate spatial rainfall distribution in the main sowing month of July 2008, will be keenly watched by market men. Market men will also watch corporate advance tax payments for the first installment that falls due on 15 June 2008, which will a give a cue on expected Q1 June 2008 numbers from top Indian corporates. The income tax law requires a company to 15% the estimated tax liability for the year as advance tax in the first installment. The advance tax payment by the corporate sector will give a cue on Q1 June 2008 results.
Experts feels that the downside for the markets from here seems quite limited. This is because very clearly at lower levels decent amount of buying coming in. So in fact we may not see the markets going down much more from here. But at the same time at higher levels, you have selling coming in from people who are stuck.
The market is likely to move in sync with global markets in the coming week. Markets across the globe suffered severe setback in the past few days triggered by spiraling global commodity prices led by crude oil. Selling was seen in metal, realty, power, FMCG and some oil stocks while buying in pharma stocks. Foreign institutional investors (FIIs) have pressed heavy sales in the backdrop of a weakening rupee against the dollar. In June 2008, FIIs dumped shares worth Rs 6,463.20 crore (till 12 June 2008). FII outflow in calendar year 2008 totaled Rs 21,832.60 crore (till 12 June 2008). On the other hand, mutual funds were net buyers of shares to the tune of Rs 894.89 crore in the month of June 2008, till 11 June 2008. India’s economic growth has slowed down as a result of fall in consumer demand caused by rise in interest rates. Industrial output rose 8.1% in 2007/08 (April-March) compared with 11.6% growth in 2006/07.
Fears of Reserve Bank of India (RBI) further hiking interest rates to check soaring mutli-year high inflation, which could choke overall growth of the economy, will continue to haunt investors. Earnings downgrades by brokerages amid rising input and interest costs for India Inc and drying up of global liquidity due to credit crisis remain major concern for the Indian stock market. A further hike in rates would impact bottomline of Indian companies. Also high interest rates may delay expansion plans of corporates, which in turn may impact future earnings growth.
The Indian Meteorological Department (IMD)’s second monsoon forecast for the crucial annual south-west monsoon (June-September) due this month which may indicate spatial rainfall distribution in the main sowing month of July 2008, will be keenly watched by market men. Market men will also watch corporate advance tax payments for the first installment that falls due on 15 June 2008, which will a give a cue on expected Q1 June 2008 numbers from top Indian corporates. The income tax law requires a company to 15% the estimated tax liability for the year as advance tax in the first installment. The advance tax payment by the corporate sector will give a cue on Q1 June 2008 results.
Experts feels that the downside for the markets from here seems quite limited. This is because very clearly at lower levels decent amount of buying coming in. So in fact we may not see the markets going down much more from here. But at the same time at higher levels, you have selling coming in from people who are stuck.
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